Don't Ignore This Chart!

When A Hammer Meets Gap Support

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I'm a big fan of candlesticks, particularly reversing candlesticks as they many times signal that a short-term downtrend has ended in an overall uptrending stock.  One of my favorite trading strategies is to trade strong stocks off gap support.  So what happens when both strategies meet?  Well, JD.com (JD) has both right now so its trading behavior over the next two weeks will be quite interesting as that's when it reports its next quarterly results.  Here's the current technical outlook:


JD is well off its August high.  The stock had trended higher prior to its last quarterly earnings report where it beat both top and bottom line Wall Street consensus estimates.  It seems to have been a "buy on rumor, sell on news" type of event.  Friday's hammer, finally filling the May earnings gap, could be a signal for a pre-earnings run higher.  Consider a closing stop beneath 35.50 in the event that JD breaks down, while a quick move higher to the 40.00-40.50 area would represent approximately an 8% advance.

JD's weekly chart shows a much more bullish picture:

That was an impressive one year uptrend, one in which JD rose more than 150%.  The fibonacci retracement tool shows that the recent selling has carried JD into a key 38.2%-50.0% retracement zone where many uptrending stocks reverse and resume their prior trend.

There's a lot to like here with JD, but just remember to always keep your stops in play as nothing provides a guarantee.

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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